The Turnaround Ford Motor Company Essay Example

earnings primarily come from consumer automobile loan financing through its credit division.

In 2005, Ford's bond ratings were downgraded to junk status by bond rating agencies due to several reasons, including high healthcare expenses, increased gasoline prices, reduced market share and dependence on the declining sales of SUVs for revenue. Incentives offered to counteract dropping demand led to decreased profit margins on larger vehicles. Additionally, Ford's response was slow in adapting to the rising demand for smaller fuel-efficient cars and untimely factory retooling further contributed to its decline. To combat these challenges, Ford decided to produce new vehicles using universal car platforms instead of body-on-frame truck chassis. The company also developed alternative fuel and high-efficiency vehicles like the Escape Hybrid.

Ford partnered with Southern California Edison to investigate the potential of plug-in hybrid technology and its cohesiveness with home, vehicle energy systems, and the electrical grid. To obtain a line of credit of almost $25 billion in December 2006, Ford offered all corporate assets as collateral. In November 2007, an agreement was reached between Ford and United Auto Workers to tackle high labor costs by establishing a trust funded by the company for retiree health care expenses that will enhance their balance sheet starting January 1, 2010.

Despite projecting no profit until 2009 and experiencing a record annual loss of $12.7 billion in 2006, Ford surprised Wall Street with a Q2 2007 profit of $750 million. However, the company still ended the year with a deficit of $2 billion.

Volvo incurred a loss of $1 billion due to financial restructuring, which Ford was held accountable for. In March 2008, Tata Motors bought Jaguar and Land Rover operations from Ford

for $2.3 billion and required that Ford contribute up to $600 million towards the pension plans of these brands.

In 2006, Ford unveiled "The Way Forward" as their fresh approach to business strategy. The objective of the plan is to combat the company's loss of approximately 25% in U.S. automotive market share since the 1990s by resizing, discontinuing unprofitable and inefficient models, consolidating production lines, shutting down factories and reducing over 30,000 jobs.

In September 2006, Alan Mulally became Ford's CEO. He holds an engineering degree in Aerospace and an MBA from MIT. Having worked for Boeing for 37 years, he is credited with turning the company around. Some critics argue that his aerospace background does not apply to the automobile industry. Nevertheless, Mulally implemented Toyota's production model methods at Boeing Corporation to improve its performance.

Integrating manufacturing processes into Ford Motor Corp, Mulally is known for his efficiency and cost-cutting abilities, having shed 46,000 jobs in North America alone. With experience in customer and labor relations, supplier relations, and manufacturing, Mulally's goal is to make Ford profitable once again by 2009. To achieve this, he recently hired the Chief Marketing Officer from Toyota to rebrand Ford products.

Mulally's goal is to enhance the caliber of Ford's merchandise, which has earned comparable appraisals as Toyota from JD Power and Consumer Reports. He intends to create cars that are produced globally, supplanting local offerings and decreasing manufacturing expenses by constraining consumer choices. Previously, specific Ford brands had an extensive array of 128 interior alternatives resulting in substantial cost escalation. Although savings of $5 billion have been achieved in North American operational costs during the last three years, there remains scope

for betterment on Ford's financial statement.

As of now, Ford has an overall value of around $279 billion in assets. However, their liabilities have gone over slightly at $273 billion. This has led to an increase in stockholder equity from 2006, when the company had more liabilities than assets, and it currently stands at $5.6 billion. Additionally, Ford's long-term debt is presently at $168.53 billion.

Although Ford experienced substantial losses in 2006 and 2007, the company has managed to decrease its long-term debt by $4 billion. As a result, its current ratio now stands at 1.18, demonstrating that it can fulfill its short-term debt responsibilities. Nevertheless, its debt-to-equity ratio stays at 29.4.

Although Ford's book value per share stands at 2.564, the company has encountered substantial debt and a rise in interest expenses during the period of 2005 to 2007, which could be attributed to their junk-rated bonds and loss. Nevertheless, with the implementation of advantageous extension credit terms lately, it is feasible that the company's net income and income statement may enhance as they concentrate on improving their operations.

By reducing inventories, they have achieved a cash position of more than $22.77 billion and better cash flow, while also decreasing accounts receivables. This has led to a forward P/E ratio of 15 as per important valuation metrics.

The company's financial ratios include a Price/Sales ratio of 28, a Price/Book ratio of 10, negative profit margin at -1.39, negative operating margin at -1.97, and an Enterprise Value/EBITDA ratio of 15.

Despite achieving a Gross Profit of $29.87 billion and EBITDA of $10.52 billion, Ford still has ground to make up in the fiercely competitive automotive industry.

Although Toyota outperformed its

competitors in gross margin, operating margin, and net income, the industry as a whole has been impacted by the economic climate. Both GM and Toyota experienced setbacks, with GM suffering losses exceeding $3 billion and Toyota seeing a decrease in annual profit for the first time in nine years. Nonetheless, analysts foresee prospects for growth in Brazil, China, and Russia. Ford surpassed expectations during Q1 with unexpected earnings of $100 million driving up stock prices significantly.

During the first quarter, Ford's stock price received a 15% surge or $90 increment in value on a single day. In contrast, General Motors faced losses worth $3.3 billion. The rise in profits was instigated by Kirk Kerkorian's declaration of acquiring 100 million shares in Ford and proposing to purchase another 20 million shares, which heightened hopes among investors. Mulally is credited for enhancing efficiency and productivity while reducing expenses at Ford, as well as securing favorable pricing from major suppliers through agreements contributing significantly to the company's success.

Ford is experiencing increased supply costs per vehicle in comparison to rival companies, resulting in an average discrepancy of $800. In response, the corporation intends to launch fresh models in North America (namely Ford Flex, Lincoln MKS, and Ford F-150) and Europe (such as Ford Kuga and Fiesta). However, it remains unclear whether these designs will be successful in boosting sales since consumers are cutting down on expenditure due to soaring fuel prices. This may pose obstacles for the automobile industry when marketing costly merchandise like automobiles.

Due to rising costs, numerous customers are choosing hybrid vehicles, prompting Ford to improve their North American operations while simultaneously increasing their global market share, particularly

in China. Despite the potential risks involved, Mulally's strategy of prioritizing Ford's primary model and phasing out other models proved successful at Boeing, leading the Ford family to place their trust in it.